The Economics of the Tenure System

"Tenure
plays a valuable role in the operation of most colleges and universities, but for a reason quite different from those usually advanced in its defense."

An increasingly contentious issue in academia is the tenure system, which awards lifetime employment to faculty who have demonstrated sufficient proficiency in research, teaching, and service. Critics note that tenure does not exist outside academia, and they conclude that the degree of job security it offers must therefore be excessive. These critics also observe that even the most substantial teaching loads involve only a few hours per week of class time during about 30 weeks per year. Thus, these critics charge that tenured faculty receive an extraordinary level of compensation relative to the effort required.

Those who defend the tenure system believe tenure is essential to academic freedom, meaning the ability of faculty to teach and research the topics they find promising without fear of retribution. These supporters believe that without tenure, political views would play a large role in who is retained and who is not; they also believe faculty need job security to encourage risk-taking in teaching and research.

I argue here that the standard criticisms of tenure are off the mark and based in part on a flawed understanding of academia. At the same time, I suggest that the standard defense of tenure is unpersuasive; indeed, tenure potentially stifles the innovation and creativity it allegedly protects. I do conclude that tenure plays a valuable role in the operation of most colleges and universities, but for a reason quite different from those usually advanced in its defense.

The Case Against Tenure is Misdirected

The standard argument against tenure is that life-time contracts do not exist outside academia and must therefore be excessive. Newly hired faculty spend six to eight years as assistant professors, during which time they are evaluated by the tenured faculty in their department. Those who impress their senior colleagues receive a lifetime job, barring extreme misconduct. The degree of job security for tenured faculty is therefore high relative to most other jobs, but whether it is excessive is a different question.

The problem with this critique of tenure is that it fails to consider the entire package of compensation that academic faculty receive relative to the packages these faculty could earn in other occupations. Many faculty have the ability to succeed in jobs that have substantially higher compensation than academia. This is most obvious in fields like law, economics, business, engineering, and the sciences, but it applies in a range of fields. Indeed, many faculty who are denied tenure subsequently find higher paying jobs outside of academia. The tenure system provides higher job security than would, say, a for-profit company, but it provides far less in monetary compensation.

This implies that the faculty who accept jobs as tenured academics would not accept those jobs at the same salaries if the degree of job security were the same as in other occupations. Instead, they would demand higher salaries or choose other professions. The correct view of the tenure contract is that universities get high-priced talent at a low monetary price; they pay instead by providing job security. Whether it makes sense to use this compensation package, as opposed to more standard ones, is a legitimate question that I address below. But the key point is that one cannot simply compare job security across occupations; one must also compare salary and other job attributes.

A second problem with the standard critique of tenure is that while tenure guarantees a lifetime job under most circumstances, it does not guarantee a lifetime of salary increases. The general interpretation of tenure holds that universities cannot fire tenured faculty except for gross dereliction of duty and cannot cut their nominal salaries (otherwise, tenure would be meaningless). But the general interpretation also permits universities to keep nominal salaries fixed indefinitely, if performance does not measure up. Thus, tenured faculty who do not publish, who teach poorly, or who fail to perform adequate service will find their nominal salaries held constant while their real salaries fall year after year. This may not make a huge difference over a few years. But over decades, inflation can erode real compensation drastically. This means faculty have an incentive to seek alternative employment, and the guarantee of a lifetime job is far less of a guarantee than it might appear.

The related criticism—that tenured faculty "work" only a few hours per week for only about half the year and are thus grossly overpaid—is based on a common misunderstanding of what universities and academics do. To begin, teaching requires far more time than the hours actually spent in the classroom: there is preparation of lectures, writing and grading of exams, meeting with students outside of class, and the like. In addition, most faculty have administrative assignments in addition to teaching responsibilities: reviewing admissions folders of prospective graduate students, hiring new faculty, reviewing tenure folders of existing faculty, and other mundane tasks that are essential to a functioning academic department.

Most importantly, however, the view that faculty are lazy slobs arises because the public thinks of academics as teachers, while many colleges and universities, along with the academics themselves, think of faculty mainly as researchers. Set aside whether this focus on research relative to teaching is desirable (I hope to discuss this in detail in a future column). Whatever the merits of this perspective, the fact is that many academics spend much of their time on research rather than on teaching.

The Case for Tenure is not Persuasive

The conclusion that standard critiques of tenure are off target does not by itself mean tenure is a good system. Indeed, the standard defense of tenure is also not persuasive.

The usual argument for tenure is that it promotes academic freedom. According to this view, faculty without tenure face excessive pressure to avoid risky, innovative, or controversial topics in their research and teaching; tenure provides both a shield against political pressures and the security to try out risky or controversial areas. There is an element of truth in this view, but this benefit of tenure is oversold.

The key problem is that this view does not distinguish between the effects of tenure on tenured faculty and the effects of tenure on those still trying to achieve tenure. Untenured (or junior) faculty view the possibility of tenure as a reason to work hard, which is presumably a good thing. But the desire to earn tenure also makes them cautious during the pre-tenure years. Many untenured faculty fear that controversial teaching will be a hard sell at tenure time, and they opt for conventional research topics that will pay off within the short number of years in which junior faculty must either prove themselves or be terminated. And once junior faculty undertake mainstream teaching and research programs, the costs of developing new methods and topics post-tenure appear large relative to mining the expertise already acquired. Thus, many become locked in and fail to adopt more daring approaches even with the security of tenure.

This does not mean tenure stifles all creativity and risk taking; many untenured faculty embark on time-consuming research agendas or adopt controversial teaching techniques even knowing this may jeopardize tenure. And some of these faculty breeze through the tenure process, which raises an interesting issue. Perhaps those most dedicated to their teaching and research will pursue the paths they think appropriate even without the protection of tenure. The safety provided by tenure may be most attractive to those without the gumption to take real risks, while those who disdain mundane concerns like having a job are the ones who generate the great ideas.

A different reason sometimes offered in defense of tenure is that in a typical university, the administration relies on the existing faculty to hire new faculty. According to a common argument, if the incumbent faculty know that new hires could end up being their own replacements, they will never hire anyone good. Again, this view has a grain of truth. But even when their own jobs are protected by tenure, some tenured faculty resist hiring better faculty, who might compete within their departments for prestige, plum teaching assignments, top graduate students, or bigger shares of raise pools. By contrast, the faculty with the most to lose (the existing untenured faculty) often fight the hardest to attract high quality new hires. Perhaps this is because they are young and foolish, but more likely it reflects a different phenomenon: really dedicated academics want the best colleagues, despite any risks to themselves. Thus, tenure is less essential than usually suggested.

A Different Defense of Tenure

Although the standard defenses of tenure are not compelling, there is nevertheless a good argument for tenure. To see this, consider an alternative to the tenure system.

Imagine that faculty receive a sequence of three-year contracts, with these potentially renewable in the ultimate or penultimate year of the existing contract. The usual view is that this will promote higher quality research and teaching, since faculty know their jobs are on the line every few years.

The problem with this approach is that the "performance" on which faculty can be evaluated in making renewal decisions is fuzzy: most faculty are "reasonable" teachers, and most faculty manage to produce "some" research. Thus, when it comes time to evaluate faculty for renewal, most have performed "reasonably" to the degree that can be readily measured. And since there are costs of turnover, it becomes easy to make the standard for renewal a bit lax. Once this occurs a few times it establishes a low threshold for all future cases, and it becomes routine to renew anyone whose past performance is minimally acceptable.

This problem is compounded, of course, by the fact that academia is a non-profit activity. Firing mediocre employees is difficult anywhere, but at for-profit firms the owners lose real money when they tolerate marginal workers. In academia (and other non-profit institutions), there are no owners or shareholders, so no one has sufficient incentive to make the hard decisions.

The critical advantage of the tenure system is that it raises the cost of being lax in renewal decisions: if you fail to fire marginal candidates, you are stuck with them forever. Thus, under the tenure system, both faculty and university administrations impose a real hurdle for earning tenure, rather than routinely concluding that "there's no great harm in keeping Professor X for just a few more years."

Conclusion

Does all of this add up to a compelling case for tenure? That is a harder call than it used to be. Whatever its merits or lack thereof, tenure made far more sense before 1993, when the federal ban on mandatory retirement began applying to academic institutions. Until that point, tenure was a long-term contract but certainly not a life-time contract. In typical cases faculty receive tenure in their mid-thirties, and before 1993 they faced mandatory retirement at age 65. Thus, the contract was longer than for most jobs, but it was a difference of degree, not kind. And the mandatory retirement provision allowed universities to rid themselves of faculty whose productivity had declined. Many universities are now reconsidering tenure, at least in part because of the federal ban on mandatory retirement.

The question of whether to use tenure is also complicated by the existence of public institutions of higher education. None of the arguments against tenure suggests that public policies should limit its use at private universities; for these institutions, market forces can determine whether tenure's benefits outweigh its costs. But for public institutions of higher learning, the question is trickier. There are naturally abuses of tenure at any institution, and these generate far more controversy when they occur at taxpayer expense. Yet if tenure is a useful system on balance, limiting its use in public higher education places these institutions at a competitive disadvantage relative to their private sector counterparts.

Perhaps the right debate, therefore, is not about tenure but about government's role in academia. Without the ban on mandatory retirement, and without public colleges and universities, tenure would be a question for experts on organizational design but not an issue for public policy.

The cuneiform inscription in the Liberty Fund logo is the earliest-known written appearance of
the word “freedom” (amagi), or “liberty.” It is taken from a clay document written
about 2300 B.C. in the Sumerian city-state of Lagash.